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on Industrial Competition |
| By: | Caminal, Ramón; Claici, Adina |
| Abstract: | Many economists and policy analysts seem to believe that loyalty-rewarding pricing schemes, like frequent flyer programs, tend to reinforce firms' market power and hence are detrimental to consumer welfare. The existing academic literature has supported this view to some extent. In contrast, we argue that these programs are business stealing devices that enhance competition, in the sense of generating lower average transaction prices and higher consumer surplus. This result is robust to alternative specifications of the firms' commitment power and demand structures, and is derived in a theoretical model whose main predictions are compatible with the sparse empirical evidence. |
| Keywords: | coupons; price commitment; repeat purchases; switching costs |
| JEL: | D43 L13 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5353&r=com |
| By: | Jürgen Bitzer (Free University Berlin); Philipp J.H. Schröder (Aarhus School of Business) |
| Abstract: | This paper presents the stylized facts of open source software innovation and provides empirical evidence on the impact of increased competition by OSS on the innovative activity in the software industry. Furthermore, we introduce a simple formal model that captures the innovation impact of OSS entry by examining a change in market structure from monopoly to duopoly under the assumption that software producers compete in technology rather than price or quantities. The paper identifies a pro-innovative effect of OSS competition. |
| Keywords: | open source software, innovation, strategic interaction |
| JEL: | L13 L30 L86 |
| Date: | 2005–12–02 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0512001&r=com |
| By: | Claude Crampes; Carole Haritchabalet; Bruno Jullien |
| Abstract: | This paper presents a model of media competition with free entry when media operators are financed both from advertisers and customers. The relation between advertising receipts and sales receipts, which are both complementary and antagonist, is different if media operators impose a price or a quantity to advertisers. When consumers dislike advertising, media operators are better off setting an advertising price than an advertising quantity. We establish a relationship between the equilibrium levels (advertising and entry) and the advertising technology. In particular, media operators’ profit is not affected by the introduction of advertising when they impose advertising quantities and when advertising exhibits constant returns to scale in the audience size. Under constant or increasing returns to scale in the audience size, we find an excessive level of entry and an insufficient level of advertising. |
| Keywords: | media, advertising, free entry, two-sided markets |
| JEL: | L13 L82 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1591&r=com |
| By: | Cefis, Elena; Rosenkranz, Stephanie; Weitzel, Utz |
| Abstract: | Using a game theoretical model on firms' simultaneous investments in product and process innovation, we deduct and empirically test hypotheses on the optimal R&D portfolio, investment, performance, and dynamic efficiency of R&D for acquisitions and in independently competing firms. We use Community Innovation Survey data on Italian manufacturing firms. Theoretical and empirical results show that firms involved in acquisitions invest in different R&D portfolios and invest at least as much in aggregate R&D as independent firms. The empirical results do not support our hypothesis on dynamic efficiency since acquisitions lead to inferior R&D performance. |
| Keywords: | cost reduction; dynamic efficiency; innovation; mergers and acquisitions; product differentiation |
| JEL: | C72 L1 L13 O32 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5275&r=com |
| By: | M. Soledad Arellano; Pablo Serra |
| Abstract: | This paper analyzes market power in price-regulated power industries. We derive market equilibrium under different assumptions (perfect competition, monopoly, Cournot, etc.), with and without free entry. We show that when peak-load pricing is used, producers can exercise market power by increasing the share of peaking technology in the generation portfolio, compared to the welfare-maximizing configuration. In this framework natural measure of market power is the length of time that peaking technology plants operate beyond their operational time in the welfare maximizing solution. We show that when there is free entry with an exogenous fixed entry cost that is later sunk, more intense competition results in higher welfare but fewer firms. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:208&r=com |
| By: | Marcel Boyer |
| Abstract: | The development of the canadian telecommunications web is significantly influenced by the regulatory framework put in place to oversee the evolution of the web toward a competitive system. This paper has two specific objectives: first, to develop a methodological framework, which will allow a proper characterization of the level of competition in the telecommunications industry, more specifically in the residential local access market and second, to recommend some (significant) changes in the CRTC approach to the regulation of the Canadian Telecommunications industry. I argue that the current approach to the regulation of telecommunications in Canada is likely to generate significant harms to consumers and businesses as well as efficiency losses for the Canadian economy. I conclude that there is a urgent need for a telecommunications regulatory reform, with a stronger accent put on three crucial roles of the telecommunications regulator as the trusted generator of information for the consumers, as the manager of the level playing field conditions, and as the promoter of efficient investment programmes. <P>Le développement du réseau canadien des télécommunications est influencé de façon significative par le cadre réglementaire adopté pour régir l’évolution de ce réseau vers la concurrence. Cet article a deux objectifs principaux : d’une part, développer un cadre méthodologique adéquat pour caractériser le niveau de concurrence dans l’industrie des télécommunications, plus particulièrement du marché des services résidentiels locaux, et, d’autre part, de proposer des changements (importants) au cadre réglementaire actuel. Je montre que le cadre réglementaire actuel peut engendrer des problèmes importants pour les consommateurs et l’industrie ainsi que des pertes d’efficacité pour l’économie canadienne. Il existe un besoin urgent de réformer le cadre réglementaire actuel, en mettant l’accent sur trois rôles essentiels de l’agence de régulation des télécommunications comme fournisseur d’informations aux consommateurs, comme gestionnaire des conditions de concurrence loyale pour toutes les entreprises et comme promoteur de programmes d’investissement efficaces. |
| Keywords: | competition, regulatory reform, telecommunications , concurrence, réforme de la réglementation, télécommunication |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-35&r=com |
| By: | Philipp Festerling (Department of Economics, University of Aarhus, Denmark) |
| Abstract: | The paper explores the interdependencies between corporate and individual leniency programs. In a duopoly model where corporations are separated into representing owners and operating managers, conflicts between the two types of agents arise if the relative benefits of participating in the corresponding leniency programs differ. As an example of what might cause differing relative benefits, the paper considers the inclusion of damage payments for owners which are not covered by the corporate leniency program. The main findings are: (1) Individual leniency applications are never observed. (2) Threats by managers to apply for individual leniency may, however, increase the owners’ incentive to carry out corporate self-reports. (3) In other cases, the individual leniency program increases the owners’ tolerance for cartel activity for two reasons: Either the corporate leniency program is sufficiently unattractive to the owners, or the owners rely on the option to apply for corporate leniency after the Antitrust Authority has opened a case. (4) Finally, the more distortion decreases, the more ineffective the individual leniency program becomes. |
| Keywords: | Leniency, corporate leniency, individual leniency, cartel, law enforce- ment, antitrust |
| JEL: | K21 K42 L13 L44 |
| Date: | 2005–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:aah:aarhec:2005-20&r=com |
| By: | Aghion, Philippe; Blundell, Richard William; Griffith, Rachel; Howitt, Peter; Prantl, Susanne |
| Abstract: | How does firm entry affect innovation incentives and productivity growth in incumbent firms? Micro-data suggests that there is heterogeneity across industries - incumbents in technologically advanced industries react positively to entry, but not in laggard industries. To explain this pattern, we introduce entry into a Schumpeterian growth model with multiple sectors which differ by their distance to the technological frontier. We show that entry threat spurs innovation incentives in technologically advanced sectors - successful innovation allows incumbents to prevent entry. In laggard sectors it discourages innovation - increased entry reduces incumbents' expected rents from innovating. We find that the empirical patterns hold using rich micro-level productivity growth and patent panel data for the UK, and controlling for the endogeneity of entry by exploiting the large number of policy reforms undertaken during the Thatcher era. |
| Keywords: | entry; growth; innovation |
| JEL: | D21 F21 L10 O31 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5323&r=com |
| By: | Burgess, Simon; Propper, Carol; Wilson, Deborah |
| Abstract: | Extending choice in health care is currently popular amongst English, and other, politicians. Those promoting choice make an appeal to a simple economic argument. Competitive pressure helps make private firms more efficient and consumer choice acts as a major driver for efficiency. Giving service users the ability to choose applies competitive pressure to health care providers and, analogously with private markets, they will raise their game to attract business. The paper subjects this assumption to the scrutiny provided by a review of the theoretical and empirical economic evidence on choice in health care. The review considers several interlocking aspects of the current English choice policy: competition between hospitals, the responsiveness of patients to greater choice, the provision of information and the use of fixed prices. The paper concludes that there is neither strong theoretical nor empirical support for competition, but that there are cases where competition has improved outcomes. The paper ends with a discussion of the implications of this literature for policies to promote competition in the English NHS. |
| Keywords: | choice; competition; English NHS reforms; health care |
| JEL: | I11 I18 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5328&r=com |
| By: | Marcel Boyer; Catherine Mercier |
| Abstract: | The CRTC recently released Regulatory Framework for Voice Communication Services using Internet Protocol (Decision 2005-28), Telecom Decision CRTC 2005-28, setting out the details of the appropriate regulatory regime applicable to the provision of VoIP services. We present a brief overview of Decision 2005-28, we then consider the positions of incumbents and competitors, and finally we comment on the above interventions in light of the economic theory of regulation and the theory of strategic competition. We conclude that the predominant model underlying the positions not only of the CRTC but also of the parties involved, including the firms themselves, both the incumbents and the new entrants, and their respective business consultants, do not stand the test of modern economic theory. <P>Le CRTC a récemment publié la décision Cadre de réglementation régissant les services de communication vocale sur protocole Internet (Décision 2005-28) dans laquelle il fixe les paramètres du régime de réglementation qui régira la fourniture des services VoIP. Nous présentons d’abord un aperçu de la Décision 2005-28 ainsi que les positions des entreprises de services locaux titulaires et des nouveaux concurrents. Finalement, nous commentons ces interventions à la lumière de la théorie économique de la réglementation et de la théorie de la concurrence stratégique. Nous concluons que le modèle dominant sur lequel s’appuient non seulement la position du CRTC, mais également celles des parties intéressées, y compris les entreprises elles-mêmes, les entreprises de services locaux titulaires et les nouveaux concurrents, et leurs conseillers d’affaire, ne résiste pas à l’analyse économique moderne. |
| Keywords: | regulation, strategic competition, telecommunications, VoIP, concurrence stratégique, réglementation, télécommunication VoIP |
| Date: | 2005–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2005s-36&r=com |
| By: | Darlene C. Chisholm; Margaret S. McMillan; George Norman |
| Abstract: | We present an empirical analysis of product differentiation using a rich new dynamic panel data set on film programming choice in a major U.S. metropolitan motion-pictures exhibition market. These data allow us to investigate the determinants of strategic product differentiation in a multicharacteristics space. We find evidence of stability in the degree of product differentiation over time, but also find that the degree of product differentiation between theatre pairs reflects a balance between strategic concerns and contractual constraints. Similarity in one dimension is offset by differentiation in others. Finally, we find that theatres under common ownership make more similar programming choices than theatres with different owners. |
| JEL: | L11 C33 L82 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0523&r=com |
| By: | Isabel Ruiz (Western Michigan Univeristy) |
| Abstract: | This paper looks into the application of the theory of “the persistence of profits” and how it can be used to model manufacturing industries in Colombia. By explaining where the theory of “persistence of profits” comes from, what it is, and what its determinants are brief descriptions of the theory is given. This paper proposes a model for examining persistence of profits in Colombian manufacturing industry. By analyzing the literature and the modeling in developed countries the model takes into account the characteristics of the manufacturing industry. |
| Keywords: | Monopoly, Market structure, Barriers to Entry |
| JEL: | L |
| Date: | 2005–11–27 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpio:0511015&r=com |
| By: | Jonathan Beck; Michal Grajek; Christian Wey |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp523&r=com |
| By: | Nuno Palma |
| Abstract: | The traditional approach makes investment in innovation constrained by market structure. This paper explores the causality from innovation to market structure. Omitting this causality direction on empirical models may explain empirical problems and contradictions on these models. |
| Keywords: | R&D; Market Structure. |
| JEL: | L11 O31 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp172005&r=com |
| By: | Jerry Hausman; Ephraim Leibtag |
| Abstract: | Consumers often benefit from increased competition in differentiated product settings. In this paper we consider consumer benefits from increased competition in a differentiated product setting: the spread of non-traditional retail outlets. In this paper we estimate consumer benefits from supercenter entry and expansion into markets for food. We estimate a discrete choice model for household shopping choice of supercenters and traditional outlets for food. We have panel data for households so we can follow their shopping patterns over time and allow for a fixed effect in their shopping behavior. We find the benefits to be substantial, both in terms of food expenditure and in terms of overall consumer expenditure. Low income households benefit the most. |
| JEL: | D1 D3 D4 D6 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11809&r=com |
| By: | M. Cristina Molinari (Dipartimento di Scienze Economiche Universita' Ca' Foscari Venezia Italy) |
| Abstract: | Roger Ransom and Richard Sutch's research on the social and institutional changes in the postbellum American South, summarized in their One Kind of Freedom, raised many controversies. One of them concerns the degree of competition among the advancing merchants of the rural South. Ransom and Sutch's assertion that such merchants held a 'territorial monopoly'' is usually criticized as being at odds with the high level of postbellum entry in the rural merchandising sector and the absence of significant costs to entry. The question is still open, as shown by a recent special issue of Explorations in Economic History. This paper offers a contribution to this controversy by showing that high level of entry in the market and excessively high prices need not to be in conflict. In particular, using the theory of incomplete information games to study the competition between an advancing merchant and a potential entrant, the practice of over-pricing is shown to be an equilibrium behavior if interpreted as a way of signaling information about the market riskiness. |
| Keywords: | credit merchandising, asymmetric information |
| JEL: | D43 D82 |
| Date: | 2005–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpeh:0511004&r=com |
| By: | Frisell, Lars; Lagerlöf, Johan N.M. |
| Abstract: | A firm must decide whether to launch a new product. A launch implies considerable fixed costs, so the firm would like to assess downstream demand before it decides. We study under which conditions a potential buyer would be willing to reveal his willingness to pay under different pricing regimes. We show that the firm's welfare - as well as consumers' - may be higher with a commitment to linear pricing than when pricing is unrestricted. That is, if informational asymmetries are significant, price regulations such as the Robinson-Patman Act may be endorsed by all parties. |
| Keywords: | cheap talk; incomplete information; price discrimination; price regulations; Robinson-Patman Act |
| JEL: | D82 L11 L42 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5343&r=com |
| By: | Fabián Duarte; Andrea Repetto; Rodrigo O. Valdés |
| Abstract: | Over the past few decades, banking systems in both mature and emerging markets have experienced a wave of consolidations, and mergers and acquisitions (M&A). These developments have raised a number of questions among researchers and policy makers. A key concern refers to whether bank mergers benefit or harm borrowers. The goal of this paper is to study the effects on bank clients of these M&A deals, by analyzing their effects on the loan rates paid by a sample of Chilean manufacturing firms over the 1990-98 period. Using a unique data set on credit transactions between banks and their clients, we study whether borrowers’ terms of lending improve or worsen after the merger. Our methodology allows for a heterogeneous response of firms, depending upon the number of alternative funding sources available to them. We also allow for differences in the short- and long-term response of lending rates. Our results show that M&As do affect firms’ borrowing costs, that these effects are long-lasting, and that they critically depend on whether firms have alternative lending sources that guard them from the adverse effects that mergers may convey. These results are consistent with the hypotheses that bank lending is characterized by informational monopolies and other sources of switching costs, and that valuable client-bank relationship information may be lost over the M&A process. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:206&r=com |
| By: | Ela Glowicka |
| Abstract: | Governments in the EU grant Rescue and Restructure Subsidies to bail out ailing firms. In an international asymmetric Cournot duopoly we study effects of such subsidies on market structure and welfare. We adopt a common market setting, where consumers from the two countries form one market. We show that the subsidy is positive also when it fails to prevent the exit. The reason is a strategic effect, which forces the more efficient firm to make additional costreducing effort. When the exit is prevented, allocative and productive efficiencies are lower and the only gaining player is the rescued firm. <br> <br> <i>ZUSAMMENFASSUNG - (Bail-out in gemeinsamen Märkten: Ein strategischer Ansatz) <br> Die Regierungen der EU gewähren staatliche Beihilfe zur Rettung und Umstrukturierung von Unternehmen in Schwierigkeiten. In einem internationalen asymmetrischen Cournot-Duopol werden die Wohlfahrtseffekte und die Konsequenzen solcher Beihilfe für die Marktstruktur analysiert. Grundannahme ist ein gemeinsamer Markt, auf dem Verbraucher aus zwei Ländern zusammenkommen. <br>Es wird gezeigt, dass die optimale Beihilfe positiv ist, auch wenn der Marktaustritt einer Firma nicht verhindert werden kann. Der Grund hierfür ist ein strategischer Effekt, der die effizientere Firma zu einer zusätzlichen kostenreduzierenden Maßnahme veranlasst. Wird der Marktaustritt verhindert, sind Allokations- und Produktionseffizienzen geringer, und der einzige aufholende Teilnehmer ist die gerettete Firma.</i> |
| Keywords: | subsidies, asymmetric oligopoly, exit, European Union |
| JEL: | F13 L13 L52 |
| Date: | 2005–11 |
| URL: | http://d.repec.org/n?u=RePEc:wzb:wzebiv:spii2005-20&r=com |
| By: | Darlene Chisholm; George Norman |
| Abstract: | When is it optimal for a multi-product firm to exit a product? We analyze strategic product exit using data on motion-pictures exhibition choices in a major metropolitan first-run market to estimate the survivor function for films at a given theatre. This analysis indicates that a film’s survival at a particular theatre is affected by intra-firm relative performance and interfirm competitive pressures. We find that theatres within chains avoid business stealing. Preliminary analysis further suggests that theatres compete for market share with neighboring theatres by increasing the time to exit when the competing theatre is owned by a different chain. |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:tuf:tuftec:0522&r=com |
| By: | Dakshina De Silva (Texas Tech University); Timothy Dunne (University of Oklahoma); Anuruddha Kankanamge (University of Oklahoma); Georgia Kosmopoulou (University of Oklahoma) |
| Abstract: | A number of papers in the theoretical auction literature show that the release of information regarding the seller’s valuation of an item can cause bidders to bid more aggressively. This widely accepted result in auction theory remains largely untested in the empirical literature. Recent theoretical work has also shown that this effect can be more pronounced in auctions with larger common cost uncertainty. We examine the impact of a policy change by the Oklahoma Department of Transportation that led to the release of the state’s internal estimate of the costs to complete highway construction projects. We perform a differences-in-differences analysis comparing bidding in Texas, a state that had a uniform policy of revealing the same information all throughout the period of analysis, to bidding in Oklahoma. Our results show that, in comparison to Texas auctions, the average bid in Oklahoma fell after the change in engineers’ cost estimate (ECE) policy. This decline in bids was even larger for projects where the common uncertainty in costs is greater. Moreover, the within-auction standard deviation of bids fell after the change in ECE policy with the most significant decline observed again in projects with greater common cost uncertainty. |
| Keywords: | Information Release, Procurement Auctions |
| JEL: | L0 D44 H57 |
| Date: | 2005–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0511011&r=com |
| By: | Paola Valbonesi (Università di Padova); Raffaele Miniaci (Università di Padova); Carlo Scarpa (Università di Brescia) |
| Abstract: | Competition in public utility sectors has been encouraged in recent years throughout Europe. In this paper we try and analyse the welfare effects of these reforms in Italy, with particular attention to water and energy goods. The first step is to introduce a sensible measure of affordability of public utilities and to see how many households fall below a critical threshold. This issue is analysed stressing how climatic conditions dramatically affect households’ expenditure and how the affordability of utility bills varies a lot from region to region. So far, utilities’ reforms do not seem to have produced negative effects on the weaker group of households. |
| Keywords: | Consumer behaviour, Public utilities, Regulation, Gas, Electricity, Water |
| JEL: | D12 L51 L97 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:fem:femwpa:2005.134&r=com |
| By: | Katherine Ho |
| Abstract: | Managed care health insurers in the US restrict their enrollees' choice of hospitals to specific networks. This paper investigates the causes and welfare effects of the observed hospital networks. A simple profit maximization model explains roughly 63 per cent of the observed contracts between insurers and hospitals. I estimate a model that includes an additional effect: hospitals that do not need to contract with all insurance plans to secure demand (for example, providers that are capacity constrained under a limited or selective network) may demand high prices that not all insurers are willing to pay. Hospitals can merge to form "systems" which may also affect bargaining between hospitals and insurance plans. The analysis estimates the expected division of profits between insurance plans and different types of hospitals using data on insurers' choices of network. Hospitals in systems are found to capture markups of approximately 19 per cent of revenues, in contrast to non-system, non-capacity constrained providers, whose markups are assumed to be about zero. System members also impose high penalties on plans that exclude their partners. Providers that are expected to be capacity constrained capture markups of about 14 per cent of revenues. I show that these high markups imply an incentive for hospitals to under-invest in capacity despite a median benefit to consumers of over $330,000 per new bed per year. |
| JEL: | I0 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11822&r=com |
| By: | Katherine Ho |
| Abstract: | Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction. |
| JEL: | I0 I1 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11819&r=com |
| By: | Ben Shepherd (Groupe d'Économie Mondiale) |
| Abstract: | Vector autoregressions are used to model price transmission through the coffee processing chain, from producers to the world market and from the world market to consumers. A comparison is made of price dynamics against a backdrop of two very different market structures: pre-1989, producers exerted market power through export quotas and state- controlled marketing channels; post-1989, government interventions are minimal, but private actors at intermediary, processing and retailing levels have become quite concentrated. Interestingly, the analysis shows that liberalisation has not improved price transmission as significantly as expected and in some respects appears to have worsened it noticeably. One possible explanation is market power amongst private actors at intermediate levels in the processing chain. |
| Keywords: | Vector Autoregression; Market Power; International Trade; Commodity Market Liberalisation; Coffee. |
| JEL: | C32 L11 L66 Q13 Q17 |
| Date: | 2005–11–24 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpit:0511013&r=com |
| By: | Jan-Egbert Sturm; Barry Williams |
| Abstract: | This study applies parametric distance functions to estimate the efficiency of foreign banks in Australia, and subsequently employs extreme bounds analysis to establish the determinants of foreign bank efficiency that are robust to model specification. The limited global advantage hypothesis of Berger et al (2000) is supported. Following clients is found to reduce the efficiency of the profit-creation process. The market share of the incumbent banks acts as a barrier to entry to efficiency in the retail market, with acquisition of a domestic bank reducing this effect. Internet-based bank product delivery reduces the efficiency of profit creation in the initial phases of operation, and parent profits do not improve efficiency in the host market. |
| Keywords: | foreign bank efficiency, distance functions, extreme bounds analysis, barriers to entry, following clients |
| JEL: | C15 C52 G15 G21 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1587&r=com |
| By: | Chen, Zhaohui; Wilhelm Jr, William J |
| Abstract: | In our model, information-producing agents can opt to produce from the sell-side, in which case they can only sell their information to other market participants, or produce from the buy-side, in which case they agent can trade in the financial market. If sell-side information substitutes for that produced on the buy-side, some form of subsidy is necessary to sustain sell-side production in equilibrium because sell-side agents cannot commit to narrow dissemination of their information among buy-side agents. Competition among buy-side agents leaves buy-side (private) information as the primary source of trading profits. Subsidizing sell-side research promotes welfare because such information enters financial market prices and thereby improves real investment decisions. But subsidies compromise welfare through conflicts of interest facing the sell-side analyst. We derive conditions under which the net welfare effect is positive and shed light on means of managing the tradeoff. |
| Keywords: | conflicts of interest; financial analysts; industrial organization; investment banking; securities regulation |
| JEL: | D82 G14 G24 L22 |
| Date: | 2005–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5314&r=com |
| By: | Paolo Buccirossi (Lear - Laboratorio di economia, antitrust, regolamentazione, E-mail: paolo.buccirossi@learlab.it); Giancarlo Spagnolo (Stockholm School of Economics, Consip Research Unit, and C.E.P.R. E-mail: giancarlo.spagnolo@tesoro.it or giancaspagnolo@yahoo.com) |
| Abstract: | We study the consequences of leniency – reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers – on sequential, bilateral, illegal transactions, such as corruption, manager-auditor collusion, or drug deals. It is known that leniency helps deterring illegal relationships sustained by repeated interaction. Here we find that - when not properly designed - leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence. |
| Keywords: | amnesty, corruption, collusion, financial fraud, governance, hold up, hostages, illegal trade, immunity, law enforcement, leniency, organized crime, self-reporting, whistleblowers |
| JEL: | K42 K21 |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:74&r=com |